Unemployment

What is Unemployment?

Unemployment refers to those individuals who are not in employment and who are either in the process of moving to a new job or who are unable to find work. There can be voluntary unemployment as well as involuntary unemployment. The voluntary unemployment occurs when there are jobs available for the stated person but s/he is not willing to get employed at the prevailing wage rate. This is more common among fresh graduates and undergraduate who postpone their employments for studying purposes. The involuntary unemployment occurs when there are no jobs available for a specific person even though s/he is willing to work at the prevailing wage rate. Involuntary unemployment is common among school leaver who try to find a job to earn a living.

Types of Unemployment

• Natural/Search Unemployment-

Search Unemployment occurs when people search for a better prospect job in terms of salaries and other employment benefits. As an example, underemployment among recently graduated fresh graduates searching for job while evaluating available vacancies can be identified. As soon as they get employed they move away from this category so that this can be named as a short term unemployment.

• Seasonal Unemployment-

Seasonal unemployment occurs when there are fluctuations in demand for labour due to the changes in seasons. This is more common in agricultural industry where farmers are employed during one half of the year and during the other half of the year they are unemployed.

• Frictional Unemployment-

This is situation where unemployment occurs due to the surplus of labor in one region and a deficit in another region. This is a short term situation and this can be easily eliminated by advertising and other ways of information sources. As an example if there is a shortage of trained teachers in Southern region of Sri Lanka and there is a surplus of labor in the Central region of Sri Lanka, this problem can be sorted out with the help of communication and transfers from surplus region to the deficit region.

• Cyclical/ Demand Deficient Unemployment-

This is a situation where unemployment occurs due to the fluctuations in the trade cycle of an economy which is affected by the aggregate demand level. This type of unemployment is serious in nature where the government has to take necessary action to rectify the errors in the trade cycle. As an example, during an upswing (boom) of a trade or business cycle, aggregate demand increases resulting in greater unemployment. However, during the downswing (recession), the reverse occurs giving risk to unemployment.

• Structural/ Technological Unemployment-

This can occur due to the change in the structure of an organization/economy due to change in technology. High level of office automation has resulted in structural unemployment where the organizations lay off employees with a redundancy payment due to the less need for human labor. As an example at a bank no of teller staff will be reduced due to the introduction of automated teller machines. (ATM)

Anti-Unemployment Policies by Government

• Establishing job search centers in various part of the island to encourage job seekers and employers to meet and bargain.
• Encourage private sector to advertise when there is a job vacancy.
• Creating temporary job opportunities contracts/part time basis.
• Impose minimum wage rates- This is where the government specify the minimum wage rate that has to be paid for employees of each field. Minimum wage can differ from industry to industry as well as from job to job. But this will encourage unemployeds to get employed and earn a living as they are guaranteed of a minimum wage.
• Encourage growth in private sector-Government provides tax reliefs, reducing import duties and other incentives to the private sector who are willing to set up new employment opportunities in the economy.
• Control the pace of change in the technology to control the level of structural unemployment.

Tagged CIMA, Economics